Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Trading Primer: NFLX - ITS A STORY STOCK!

|Includes: Netflix, Inc. (NFLX)

* To view charts, hold down the control key while clicking any link.

NFLX Chart 1:

Oh wait, I forgot the "boyz" on the desk don't like nursery rhymes :)   This little piggy went to Helga's house of Pain....

NFLX Chart 2:

NFLX Chart 3:

NFLX Chart 4:

NFLX Chart 5:

NFLX Chart 6:

And this little piggy cried wee, wee, wee all the way home.

Yes, this story always makes me cry too. 

Seriously though, you know that feeling you got in the pit of your stomach when NFLX gapped down?  That "I'm going to be sick, I can't believe I was this (insert your word here) AGAIN"!  Yea, that one.  Take that feeling, put it into the same column as your best trading gains and leave it there for the rest of your trading career.  It is a priceless lesson - don't like the way this feels?  Don't do it again.


The boyz woke up in the front yard of Helga's place.  Although battered and bruised, they stood up and vowed never to touch that piggy again.  Impressed by their resiliancy, Helga offered some time honored advice.....
  1. If your stock gaps down on news after hours and continues to sell down on high volume - let your stop take you out at the open.
  2. If your stock gaps down on news after hours, goes to an extreme and rebounds making a nice long tail on the candle - consider pulling your stop for the open so as not to get filled at reaction prices, then put it back on after the initial knee jerk is done.
  3. If you are trading in a spread and the stock gaps down the most you can lose is the spread less the credit you received.  (reverse for debit spreads).
  4. Read #3.  Your risk on spread was pre-determined.  If it was appropriate then it should be appropriate now.
  5. Read #4.  If you find yourself changing your mind about appropriate risk, you are learning a valuable lesson.  Risk is measured in real dollars.
  6. If the stock opens down and then surpasses the "reaction low" on good volume with a nice set of clear candles, consider a snap-back trade.  It's also called a dead cat bounce but I like cats.
  7. Limit stops on options don't work with gaps.  If you are sure you want to stop out choose a stop market, not a stop limit.
  8. Spreads will do just that, spread.  They will look whacky but the spread is there to protect you.  Don't cover the short side of the spread unless there is technical confirmation there will be a continuation down.  There is nothing like paying up to cover a short then watching it rebound and losing on the long side as well.
  9. If price stabilizes and begins a low volume rise, watch for a short near the halfway point of the last big gap down candle.  This is a natural retracement point.
  10. If you're upside down in a trade, frozen and unable to trade - phone a friend.  Every money manager should have an emergency trader.